CST and its inherent dangers to Nigerian economy

The Nigerian government may unwittingly precipitate a major disorder in the national economy following its planned introduction of nine per cent Communication Service Tax (CST), which would adversely affect some critical sectors of the economy whose operations and existence rely heavily on the use of telecommunications products and services, especially voice and heavy data usage. […]

The Nigerian government may unwittingly precipitate a major disorder in the national economy following its planned introduction of nine per cent Communication Service Tax (CST), which would adversely affect some critical sectors of the economy whose operations and existence rely heavily on the use of telecommunications products and services, especially voice and heavy data usage. Some of the industries that the new tax would affect include startups and growing businesses, financial institutions especially banks which principally depend on data services, medical services, transportation, education and other information-dependent businesses and activities.
Nigeria is still miles away in achieving its set objectives on cashless economy; cashless transactions are mostly dependent on the use of the internet to make electronic payment online real time. However, the imposition of additional tax on users of communications services such as e-payment system will further jeopardise the gains already achieved because many more Nigerians and business owners will be forced to stop making electronic transactions and other internet-based services if it further drives up the cost of doing business.
There are about 36.5 million growing businesses in Nigeria made up of Micro, Small and Medium Scale Enterprises (MSMEs), according to available statistics from the Small and Medium Enterprises Development Agency of Nigeria (SMEDAN). The agency further indicates that the SME sector also accounts for about 75 per cent of Nigeria’s total employment generation and 80 per cent of the country’s total number of enterprises. The Federal Ministry of Industry, Trade and Investment in a 2015 report on the sector also noted that MSMEs accounted for 48 per cent of Nigeria’s Gross Domestic Product in 2015, 55 per cent in 2014 and 47 per cent in 2013. This impressive outlook underlines the critical roles of small businesses in the socio-economic well-being of the country.
The administration of President Muhammadu Buhari is determined to drive national economic prosperity by promoting SMEs in line with its economic diversification strategy. To this end, the administration recently launched the N10 billion Youth Entrepreneurship Support (YES) initiative through which youths can access loans on friendly terms at the Bank of Industry to start their own businesses.
However, the operating environment remains harsh for businesses, occasioned by lack of support infrastructure, poor power supply, multiple taxation, inconsistency of government policies, corruption and cumbersome process in dealing with government agencies. Other limiting factors include scarcity and high rate of foreign exchange to import raw materials that are not readily available locally and uncontrolled importation of finished goods thereby causing low market share for locally-made goods.
With the Nigerian economy in recession and businesses, particularly SMEs, battling tough times, it is imperative that businesses seek innovative ways to stay afloat. This is why smart entrepreneurs and business owners today leverage the power of telecommunications to widen their access to the market. Through the availability of affordable and efficient broadband services, lots of businesses from small to medium and large corporations now rely on telecommunications products and services as business tools to cut costs. For example, some entrepreneurs with a medium size workforce prefer to put their workers on Closed User Group services that enable for seamless calls and short messages at near zero charge.
In the wake of the rising of the middle-class socio-economic strata, telecommunication services have also significantly boosted online retail or what is popularly called e-Commerce. Today, lots of businesses take their offerings to consumers online whereby people buy virtually everything they need: clothings, electronics, home appliances, furniture, kitchen wares and books, among several other items. The e-Commerce segment has become a major booster for the economy. Indeed, McKinsey, in its 2014 market survey report titled Lion Goes Digital, revealed that the value of Nigeria’s e-Commerce sector would hit $13 billion mark by 2018. One critical need of the SMEs that government must therefore facilitate is access to telecommunications services and products, especially affordable and efficient broadband services that can help them cut costs and penetrate new markets.
Modern organisations in retail, store or library management no longer need to employ many hands to manage and keep track of their inventories nowadays. All they have to do is to use database systems which can be accessed remotely. Even academic, research institutions and hospitals electronically store, take inventory and retrieve data quicker by taking advantage of telecommunication services to cut off delays. The benefits of nurses and doctors being able to access medical records of the patients from the hospital data bases include high productivity and better clinical experience and health management. Transportation planning and management has also become a serious social service especially in the city centres. The need for an intermodal integrated/transport system is now a compelling factor for data usage in the sector.
So, one can imagine the huge dangers which the new nine per cent service charge on communication services pose to the growth of the Nigerian economy. The reality of the modern era is that the telecoms industry is critical to powering the economic and socio-political growth of any country, hence any additional tax on telecoms services in Nigeria will automatically affect the capacity of service providers to continue to support the other sectors. Communication has become a basic necessity for Nigerians, in their individual capacity and at the level of entrepreneurship. When government taxes telecom services more, it has ripple effects on many aspects of our national economy; just like the spiral effect of fuel price hike on transportation, food items and other basic needs. Government must therefore stop the planned imposition of the CST. If government’s projection is to make startups and small businesses the driver of national economic growth, then the new tax is undoubtedly a major stumbling block.
Ndubuisi lives in Enugu.